As the end of the year approaches, the IRS encourages taxpayers to consider a tax withholding checkup. When taxpayers take a close look to make sure the right amount of tax is withheld now, they can avoid an unexpected tax bill next year.
Here are five examples of taxpayers who would benefit from a withholding check-up:
• Taxpayers who received large tax refunds in past years
When a taxpayer has too much tax withheld from their paycheck, they pay too much tax during the year. They can change their withholding to have money upfront rather than waiting for a bigger refund.
• Taxpayers who owed taxes in years past
Taxpayers with too little tax withheld might owe money. Under-withholding can lead to both a tax bill and an additional penalty.
• People with a second job
This includes people who work in the sharing or ‘gig’ economy. Taxpayers who work more than one job should check the total amount of taxes they have withheld and make adjustments as necessary. This will ensure their withholding covers the total amount of the taxes they owe, based on their combined income from all their jobs.
• Taxpayers who make estimated tax payments
Some taxpayers make quarterly estimated tax payments throughout the year. This includes self-employed individuals, partners, and S corporation shareholders. If these taxpayers also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.
• People with a new job
Taxpayers who start a new job should check their withholding to make sure they are having enough taxes withheld. Their total withholding should cover the income tax owed from their new and old jobs combined.
To make sure their employer withholds the right amount of tax, employees can adjust their Form W-4, Employee’s Withholding Allowance Certificate. In many cases, this is all they need to do. The employer uses the form to figure the amount of federal income tax to be withheld from pay. This takes time, so taxpayers should make adjustments as soon as possible so the changes can take affect during the final pay periods of 2017.
The IRS has several resources that help taxpayers determine if they are having the right amount of tax withheld from their pay.